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date: 01 October 2020

Abstract and Keywords

This chapter gives a brief survey of dynamic games in macro models of climate change and, then, studies a simple endogenous growth model that includes an energy balance model. The world is composed of heterogeneous regions that differ with respect to their production technologies and with respect to the damages they suffer from climate change. The government in each region sets the abatement share such that inter temporal welfare is maximized. The analysis shows that less developed countries with more polluting technologies and higher damages from climate change should spend a higher share of GDP for abatement. But, nevertheless, these countries may still emit more greenhouse gases than countries with cleaner technologies and smaller damages. This holds both for the non-cooperative as well as for the cooperative world. Poor regions profit most from cooperation compared to the non-cooperative case

Keywords: dynamic games, endogenous growth, energy balance model, global warming, heterogeneous regions, second-best optimum

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